Friday, February 27, 2009

Obama Declares War on Investors, Entrepreneurs, Businesses, and More

Let me be very clear on the economics of President Obama’s State of the Union speech and his budget. He is declaring war on investors, entrepreneurs, small businesses, large corporations, and private-equity and venture-capital funds. That is the meaning of his anti-growth tax-hike proposals, which make absolutely no sense at all -- either for this recession or from the standpoint of expanding our economy’s long-run potential to grow.

Raising the marginal tax rate on successful earners, capital, dividends, and all the private funds is a function of Obama’s left-wing social vision, and a repudiation of his economic-recovery statements. Ditto for his sweeping government-planning-and-spending program, which will wind up raising federal outlays as a share of GDP to at least 30 percent, if not more, over the next 10 years.

This is nearly double the government-spending low-point reached during the late 1990s by the Gingrich Congress and the Clinton administration. While not quite as high as spending levels in Western Europe, we regrettably will be gaining on this statist-planning approach.

Study after study over the past several decades has shown how countries that spend more produce less, while nations that tax less produce more. Obama is doing it wrong on both counts.

And as far as middle-class tax cuts are concerned, Obama’s cap-and-trade program will be a huge across-the-board tax increase on blue-collar workers, including unionized workers. Industrial production is plunging, but new carbon taxes will prevent production from ever recovering. While the country wants more fuel and power, cap-and-trade will deliver less.

The tax hikes will generate lower growth and fewer revenues. Yes, the economy will recover. But Obama’s rosy scenario of 4 percent recovery growth in the out years of his budget is not likely to occur. The combination of easy money from the Fed and below-potential economic growth is a prescription for stagflation. That’s one of the messages of the falling stock market.

Essentially, the Obama economic policies represent a major Democratic party relapse into Great Society social spending and taxing. It is a return to the LBJ/Nixon era, and a move away from the Reagan/Clinton period. House Republicans, fortunately, are 90 days sober, as they are putting up a valiant fight to stop the big-government onslaught and move the GOP back to first principles.

Noteworthy up here on Wall Street, a great many Obama supporters -- especially hedge-fund types who voted for “change” -- are becoming disillusioned with the performances of Obama and Treasury man Geithner. There is a growing sense of buyer’s remorse. Well then, do conservatives dare say: We told you so?

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

CNBC’s Margaret Brennan will report on today’s top news and developments.

On to discuss will be CNBC on-air editor Charlie Gasparino and Dawn Bennett, CEO of Bennett Group Financial Services.

General Electric, Money Politics & More

*Zach Karabell, president of River Twice Research
*Debra Brede, president of D.K. Brede Investment Management
*Dawn Bennett, CEO of Bennett Group Financial Services
*Don Luskin, chief investment officer at Trend Macro
*Michael Cuggino, president and portfolio manager for the Permanent Portfolio Family of Funds

Capitalizing Off Crisis

CNBC’s Rebecca Jarvis reports.

On board to discuss will be venture capitalist Tim Draper, founder & managing director of Draper Fisher Jurvetson.

GDP, Jobs & More

*Bob Stein, senior economist at First Trust Advisors
*Joe LaVorgna, Deutsche Bank Securities chief economist

CNBC’s Julia Boorstin will report.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Thursday, February 26, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

The Dynamic Duo will debate.

*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Robert Reich, “Supercapitalism” author, public policy professor & former Clinton labor secretary.

Squaring off in this moneypolitics debate will be CNBC ace Charlie Gasparino and Mike Maiello from Forbes magazine.


Superstrategist Ed Yardeni, founder of Yardeni Research, will join us with his market and economic perspective.

Also on board:

*Dr. Bob Froehlich, chief investment strategist, DWS Scudder
*Michael Pento, Delta Global Advisors, Inc. Senior Market Strategist
*Stefan Abrams, Bryden-Abrams Investment Management Managing Partner

Please join us. The Kudlow Report. 7pm ET. CNBC.

Economic Debate: Laffer vs. Liesman

Here's the transcript of last night's dynamic economic debate on CNBC's The Kudlow Report between my two good friends -- both terribly bright economists -- Art Laffer and Steve Liesman. Art is my mentor. Steve is my valued colleague.

LARRY KUDLOW: Let me bring in Arthur Laffer, I want to get his take on all this, and a few other things. Art Laffer, the head of Laffer Investments, former Reagan advisor and the co-author of “The End of Prosperity.” So Arthur, let’s have a quick lay of the land here from your perspective.

ARTHUR LAFFER: Yeah, what they’re doing Larry is the government is borrowing all the private capital available in the marketplace, then they’re the only ones left to invest anywhere. And it is, effectively, a partial nationalization of not only the banks, but of the auto industries. It’s a catastrophe. And the market is giving it a huge thumbs down and raspberry on these policies. I’ve never seen anything so bad in my life.

KUDLOW: What about this issue of the forthcoming Geithner plan? The public/private fund that is going to band together and purchase the toxic assets from the banks? Do you give that any credibility? Any efficacy? Will it do any good?

LAFFER: No, I don’t. I really don’t. I mean, everyone agrees with stress tests for banks. I mean that’s clear. But banks should do that on their own. And they should worry about their own capital functioning. That’s what they should do. It shouldn’t be a government function. And how does the government know what it’s going to be in unemployment rates, what the sensitivities are here? That’s something that, on the companies I’m on the boards of, we always do stress testing to see how we can handle bad times. But this is just government coming in and taking it all over. It’s outrageous.

KUDLOW: Steve Liesman, outrageous, that’s one of my favorite adjectives.

STEVE LIESMAN: Let me just say I share Arthur’s skepticism about the government’s ability to do anything here.

KUDLOW: Ohhhh…

LIESMAN: But Arthur…

LAFFER: Yes Steve.

LIESMAN: You have $600 billion of excess reserves in the banking system, on the balance sheet of the Federal Reserve. It is not as if people are clamoring, and lining up out the door for private capital right now. I understand, over a long period of time, there’s a situation where the government could crowd out. But in times when you have the kind of slack we have in the economy, I think it’s sort of, at least conventional economic wisdom, that the government doesn’t crowd out when it invests at this time.

LAFFER: Well it’s conventional economics from this administration, Steve. But frankly that monetary base that they’ve increased by about 150 percent in the last six months is one of the most dangerous, outrageous things I’ve seen. It’s ten times the percentage increase ever before in the US. And banks are making loans. If you look at the M1 data Steve, you can see that bank loans are increasing. They’re increasing very rapidly…

KUDLOW: Across the board. Across the board…

LAFFER: Across the board. And over the last ten years…

LIESMAN: Art, Art, I am your student Art…


LIESMAN: There’s no velocity…

KUDLOW: It’s the breakdown in the securitized secondary markets Arthur.

LAFFER: That’s what it is. That’s exactly what it is…

KUDLOW: The banks are actually doing their jobs. And oddly enough…

LIESMAN: But there’s no velocity Larry. That’s the thing. You can put out there a hundred trillion dollars, if there’s no velocity, there’s no inflationary effect.

LAFFER: But velocity comes later Steve, and then you’re going to get the inflation. The velocity will come.

LIESMAN: But you don’t have [velocity] now. Art, they can pull it back though at that point…

KUDLOW: Let’s talk about this. Hold on. Let me set the stage, this morning Arthur, this morning, on [CNBC’s] The Call with Melissa Francis and me, Steve Liesman and I had a little debate about inflation.

LAFFER: I heard.

KUDLOW: And the causes of inflation. Steve Liesman of course, is a great, famous Keynesian Phillips-curver. He believes that high unemployment reduces inflation, and low unemployment and strong economic growth raises inflation. On the other hand, I represented the monetary school, which says inflation is caused by too much money chasing too few goods. And Steve, as a throwaway said, with inflation and taxes, he’d like to discuss with Arthur Laffer. So I have delivered the aforementioned…

LAFFER: Well I love Steve Liesman, let me just tell you that Larry.

KUDLOW: Steve Liesman and Arthur Laffer. Arthur What is your response to Steve’s…

LIESMAN: He said he likes me Larry. You just talked right over that compliment.

KUDLOW: Actually, we love you. It’s not like, it’s love. It’s deep-seated love and I don’t even need a stress test to find this love.

LAFFER: The Fed can’t pirouette and do this sort of thing Larry. What they’ve done with the monetary base is they’ve set into motion an enormous inflationary pressure in the US economy. With the shrinking of the US economy, and it’s shrinking very rapidly, you not only have more money, but you also have fewer goods. That’s a classic double-whammy on inflation.

KUDLOW: Did you not hear that from me this morning, Mr. Liesman?

LIESMAN: I heard that from you.

KUDLOW: Did I say something that was almost virtually identical, even the same?

LIESMAN: You did. I do not buy the idea that capacity has been so diminished that we have a problem of too few goods. And Art, my whole point is this, is that, this idea of too much money? Absolutely. Doctrinaire. Doctrine. Absolutely. There must be a transmission mechanism. And when you have high unemployment, and you do not have the goods destruction, you maintain globalization, you maintain competition in the economy. Then you have no transmission mechanism for that inflation…

LAFFER: No, no. Steve, Steve. You’re missing one thing here, if I may interject.

LIESMAN: Okay, if it’s just one then I’m in good shape…

LAFFER: Unemployment has to do with the real wage in the system here. What we’re talking about is the price of goods, all goods, in terms of money. That has nothing to do with unemployment, except for the fact that you get fewer goods. And when you have more money and fewer goods, the amount of dollars per good goes up. It goes up because there are fewer goods and it goes up because there is more money. And the monetary base is the number you have to look at.

KUDLOW: All right, bottom line. Monetary base you have to look at.

LAFFER: That’s the one.

KUDLOW: And you should probably have a glance for the use of money from M1 and M2 Arthur, right?

LAFFER: That’s right.

KUDLOW: You buy that too. And by the way, more goods would be available to absorb the excess money. So more goods and more growth would be counter-inflationary. Is that right Art?

LAFFER: Yeah that’s exactly right. But then Larry…

LIESMAN: I agree with that.

LAFFER: But then Larry, the velocity of money is all of a sudden going to start rising…

LIESMAN: We should be so lucky…

LAFFER: Once you see your inflation starting Steve…

LIESMAN: We should be so lucky…

LAFFER: Then you’ll see the velocity soar and you’ll get [inaudible] hyper-inflation…

LIESMAN: Can we just admit that if the money sits on the balance sheet at the Fed, it is not at that moment inflationary?

LAFFER: It’s not sitting on the balance sheet at the Fed, and it is at that moment. That’s where money always sits. The question is how much money sits where and under what demand for money.

KUDLOW: All right, I’ve got to push down. I’ve got to push down. Last point. Steve Liesman wanted to know this morning Art, what is the highest marginal tax rate that would really do damage to the economy? And I want to raise this point, Mr. Obama last evening in his speech, reaffirmed his intention to roll back the Bush tax cuts. So the 33 percent tax rate goes to 36, and the 35 percent tax rate goes to 40. What we learned today Arthur is, he’s going to take steps before the Bush tax cuts expire in 2010. In his current budget, to be released tomorrow, he is going to lower the exemptions for the upper-end people. In other words, a 35 percent tax rate payer cannot deduct 35 percent, for example, of his mortgage interest. He’ll only be able to deduct 28 percent. He’ll only be able to deduct 28 percent from his charitable contributions. Art Laffer, will this hurt the economy? Just the beginning. The lower exemptions and ultimately the higher tax rates?

LAFFER: Well of course it will hurt the economy Larry. But I was watching Nancy Pelosi say that the real revenue raisers that they’re going to have to come to, and they will have to come to this, are the payroll taxes, consumption taxes, and low-income and middle-income income taxes. Sooner or later they’re going to go to that. And they’re going to go really hog wild on raising taxes. And they’re going to do it Steve, and it’s not going to be very far out in the future.

KUDLOW: All right Steve, last word, go ahead.

LIESMAN: I agree if that happens that’s terrible…

KUDLOW: Ask him your question.

LIESMAN: My only point Art that I had Art was this, is that there is no tailor rule for the great concept of the Laffer Curve. So my point is that it is impossible to know where we are on the Laffer Curve at any one point in time such that a 2 or 3 percent rise in the tax rate…

KUDLOW: Five percent, five percent.

LIESMAN: May have little effect or a huge effect.

LAFFER: That’s true, that’s true.

KUDLOW: All right Art, last word real quick.

LAFFER: But so what? We’re not after which tax rates raise revenues, we’re after which tax rates hurt the economy, hurt output, hurt employment and cause inflation. And those tax rates are continuous across the whole range and they’re getting worse and worse and worse every day Steve. It’s frightening.

KUDLOW: All right, hang on. Thank you Steve Liesman. Well done. Art Laffer…

LIESMAN: Can I just thank you for the opportunity to talk to Art Laffer?

LAFFER: Thanks Steve.

LIESMAN: Thank you Art.

KUDLOW: That was great stuff.

Thanks, Rush

From Rush Limbaugh’s Feb. 25 radio show:

RUSH: Amazingly, ladies and gentlemen, some of the brightest, most informed, and effective conservatism is now found on CNBC. Larry Kudlow has a program called The Kudlow Report. It’s at 7 p.m. on CNBC. He’s talking with Democrat Senator Bob Casey of Pennsylvania last night. Kudlow says, “Are the Democrats, your party, in danger right now? Are they on the edge of relapsing back to a 1967-, 1907-style of Big Government spending, welfare entitlement? Is that a danger? Has your party relapsed into that old big-spending label?” Now, here’s a montage of Bob Casey’s answer to the question.

CASEY: Democrats have demonstrated, at least in our recent history, that, uh, we know how to balance a budget. [snip] I’m happy that the president made a commitment, put us on a path to, uh, cutting the inherited deficit in half by the end of his first term. [snip] We’ve just been through a period where we had tax cuts for the wealthy galore. I mean we’ve never seen tax cuts like this, and we’re in the ditch now. I think we gotta get out of the ditch.

RUSH: This exasperated a guest later in the program, Charles Gasparino, who works at CNBC. He is their on-air editor. He also writes for the New York Post. Chuck Gasparino and Larry Kudlow had this exchange about what you just heard.

GASPARINO: I’m going to say why your last guest was a little full of it. You realize that Senator Casey just blamed the check troubles we’re in right now on tax cuts?

KUDLOW: On debt.

GASPARINO: It was absurd.


GASPARINO: And let me tell you something, here’s ... I’m going to give him a little lesson. There’s a stock market bubble. It blew up under Bill Clinton. It caused a recession. George Bush inherited it. Guess what he did? He cut taxes. Guess what? Things got better. I can’t stand how these guys forget about Fannie Mae and Freddie Mac. All of a sudden, it’s tax cuts!

RUSH: Well, we’re dealing with Bob Casey. He’s order of fries short of a Happy Meal. But nevertheless, he still was given the talking points. This is a great response. The Democrats are trying to say that tax cuts gave us these problems. It’s the same playbook. There’s nothing new. Folks, do you understand? Really, you can boil the Obama speech down last night to what we have heard from every Democrat since FDR except John F. Kennedy, and that is: Raise taxes and cut the military. That’s it. That’s the program. Except this, the Obama program is more wide-ranging and deeply penetrable into the fabric of this nation’s decency and goodness than any Democrat has ever tried, including FDR.

Wednesday, February 25, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

CNBC’s Sharon Epperson highlights today’s top news and developments.

CNBC senior economics reporter Steve Liesman reports.

Nationalization Talk & Cuomo’s Bonus Investigation
CNBC ace Charlie Gasparino has the latest.

*Steve Forbes, president & CEO of Forbes
*Peter Schiff, chief global strategist at Euro Pacific Capital
*Jerry Bowyer, chief economist at Benchmark Financial Network
*Jim LaCamp, RBC Dain Rauscher Sr. VP, Portfolio Manager & Financial Advisor

CNBC’s Julia Boorstin reports the dwindling fortunes of the newspapers business.

Sen. Lindsey Graham (R-SC) will join us to discuss his take on bank nationalization.

CNBC chief Washington correspondent John Harwood reports on reaction to last night’s address.

Big Government…Budget…Taxes & More
*Art Laffer, economist, chairman of Laffer Associates
*Steve Forbes, president & CEO of Forbes
*Steve Liesman, CNBC senior economics reporter
*Keith Boykin, editor of The Daily Voice

Please join us. The Kudlow Report. 7pm ET. CNBC.

Tuesday, February 24, 2009

An Interview with Canadian Prime Minister Stephen Harper

What follows below is the transcript of my interview with Canadian Prime Minister Stephen Harper on last night's show. Mr. Harper is a trained economist and quite an impressive statesman. Our northern neighbors are lucky to have him at the helm. We covered a wide range of key topics including the ailing banking system, risks of protectionism, oil sands and autos. As you'll see below, Mr. Harper offered some very wise observations and insight.

LARRY KUDLOW: All right. We are honored to welcome Canadian Prime Minister Stephen Harper to the program. Mr. Prime Minister, thank you very much.

PRIME MINISTER STEPHEN HARPER: It's nice to be here, Larry.

KUDLOW: Let me begin with an interesting subject here, banking. Everybody's talking about banking. The Canadian banks appear to be in much better shape than the American banks. They have fewer toxic assets. Their losses aren't nearly as bad. No one's talking about bankruptcy up there. I want to learn from our northern cousins. What can you tell us? Why are Canadian banks looking better than our banks?

HARPER: Well first of all I can tell you, it is true. We have, I think, the only banks in the western world where we’re not looking at bailouts or anything like that.

KUDLOW: No TARP money sir, if I’m not mistaken? No TARP money?

HARPER: We haven’t got any TARP money. We’ve gone in and done some market transactions with our banks to improve liquidity. But I think the reasons are really complex, Larry. You know, first of all, our banks are private. We don’t have a Fannie Mae or Freddie Mac equivalent mucking around in the system.

KUDLOW: Is that a lesson right there Prime Minister?

HARPER: Well, I think my observation is those are institutions with a difficult private/public mix. And sometimes private/ public mixes have benefits and sometimes they have the worst of both worlds. We don’t have anything like that. We do have though, a strong system of regulation, and activist regulators, who go and meet with the sector. But they’re macro, prudential kind of regulations. They don’t try and micromanage banks’ decisions. We try and establish good oversight and transparency.

KUDLOW: Do you have leverage and borrowing ratios that might have been enforced? Because that’s clearly one of the breakdowns here in the states?

HARPER: Well, we do have leverage ratios. What’s ironic is that our own banks had not actually achieved those ratios. They were actually working under them. Part of what we…

KUDLOW: They were under leveraged?

HARPER: They were under leveraged.

KUDLOW: Wait, wait. Canadian banks were under leveraged?

HARPER: Under what they could have been.

KUDLOW: I didn’t know there was such a thing on this entire planet earth.

HARPER: Well I think part of what we have done is through the system of regulation we’ve had, we’ve encouraged a fairly cautious culture in the banks. For example, our banks, when they sign mortgages, largely hold those mortgages rather than trading them. So they have a lot more interest in the underlying quality of those mortgages. And we avoided the sub-prime kind of problem.

KUDLOW: Did I hear you at your final news conference with President Obama last week -- you turned down, or your government or the regulators turned down a merger from one of the large Canadian banks. Is “too big to fail” solved in part by not letting them get so big? Is that a model that needs to be more regulated?

HARPER: Well I think the truth is we already have a highly concentrated sector. We have only six major banks that have most of the market. We have only three major insurance firms. And the banks also generally control the major brokerages. So obviously, to go any farther in terms of concentration without opening up the Canadian market itself would be a highly controversial decision.

KUDLOW: I want to ask you another economic question. You’re in a recession, but really, it just began. Your unemployment rate is a little bit less than the United States. Your stock market has been hit bad, as hard as our stock market, so it’s been very poor. However, from a little bit of research, the top federal personal tax rate in Canada, if I have this right, is 29 percent. Ours is 35. Mr. Obama says he’s going to push it up to 40, back pre-Bush. Is that true, 29 percent?

HARPER: Well in fairness it’s 29 percent, but there is a provincial tax put on top of that.

KUDLOW: Well we have that too.

HARPER: I think our combined income tax rate is still higher than yours.

KUDLOW: Really? How high are the provincial?

HARPER: At the highest, they’re about half, my recollection is about half of what the federal would be. On top of that they kick in at a much lower level of income. Ours kick in at about $130,000. Obviously, looking into the future, when we have a bit more fiscal room, that is something we would like to tackle. We’re bringing the corporate rate down. Our corporate tax rates will be the lowest in the G7 in the few years.

KUDLOW: Nineteen percent, is that correct? Nineteen percent?

HARPER: I think it’s down to 18 and a half, or 18.

KUDLOW: Wow. We’re at 35 percent.

HARPER: It’ll be at 15 percent in 2012. So we’ll have the lowest in the G7.

KUDLOW: Looking ahead to try to get through this banking mess, and try to get out of this most difficult recession, given the fact that Canadian banks have had a good performance, and given the fact that your tax rates—what advice would you give the United States from your perch?

HARPER: You know Larry, I’ve been asked that several times today, and unfortunately a lot of my advice would be don’t get into this mess in the first place. These are not easy things to deal with. You know, obviously we’ve got a drop in activity like you’ve got here. That’s why we’ve got a stimulus package. We don’t have a banking mess. We don’t have a mortgage mess. The truth of the matter is the president’s administration is going to look at a lot of polices, I know a lot of polices you don’t like, because a lot of them do have very serious long-run dangers. But the fact of the matter is they’ve got to do some things now that stop the continuing drop in economic activity. And the short term is going to drive a lot of decisions, for better or worse.

KUDLOW: Well if Canada is lowering its tax burdens, wouldn’t that be a reasonable example to your friends in the south?

HARPER: Well let me be clear though. When we lowered our tax burdens—and we did this in our first stimulus package over a year ago—we did that knowing we could lower our tax burdens while keeping our structural budget surplus in the long term. We could afford those tax cuts without going into deficit, immediately or in the long term. We’ve now done a second stimulus that is spending. It is short term. We’ll come out of it and we’ll go back into surplus. But we believe strongly in Canada, there’s a strong consensus, that we should keep our budget in a surplus position structurally in the long term. So we will only cut taxes if we are sure that is affordable.

KUDLOW: All right. And these tax rates, particularly the business tax rates, that’s law?

HARPER: That’s law.

KUDLOW: 19 percent or 18 percent, that’s done?

HARPER: Those are all legislated and they’ll come in.

KUDLOW: All right, let me move on quickly. Energy and climate change. The Canadian oil sands. We’ve had all the major CEOs on this program several times. Canada is our biggest importer, our biggest source. Now, problem. The Obama administration—Carol Browner—his top energy person who was up at the conference you just completed, they are against the Canadian oil sands because of the carbon emissions issue. Some states like California may actually try to stop the importation of energy and oil from the Canadian sands. What can you tell us? How is this going to be resolved?

HARPER: Well first of all, let me be clear about the importation of oil sands oil. Regardless of what any legislature does, the United States will be importing this oil. Because there is absolutely no doubt if you look at the supply and demand pattern into the future, the United States is going to need Canadian oil. It is the one secure, growing, market-based source of energy that the United States has. So there will be no choice but to import oil sands. We…

KUDLOW: Well you say that. But that’s an economic decision. But what about the political, legislative route? Did you talk to President Obama about that? His whole campaign, and as I said, he’s got Carol Browner running this from the White House; he’s got people all over his administration totally hostile to the oil sands because of the carbon problem.

HARPER: Well, and look, we believe there is also, there is a carbon problem there, Larry. And we’re prepared to work to reduce the carbon footprint of the oil sands. But as President Obama himself said, when he talked about the oil sands, he also talked about coal-fired electricity in the United States. Carbon emissions from coal-fired electricity in the United States are 40X the emission of the oil sands. So we’ll take care of, we’ll work on that problem, just as we expect the United States to be working on the problem of coal-fired electricity.

KUDLOW: But you don’t think the flow of your exports of the oil sands will be stopped? You don’t think that flow will be stopped because of the environmental, climate change considerations?

HARPER: I think that policy—any policy like that—is completely unrealistic. If you look at American needs for energy and where Americans can get supply at a reasonable price, it’s completely unrealistic. But it doesn’t mean that we will shirk our environmental responsibilities. We are making significant investments, carbon capture and storage, and other things, that your government is also doing. And we will do what we can to reduce the carbon footprint. But there should be no illusion that economic reality will hit those environmental polices pretty hard when one goes to implement them.

KUDLOW: One can only hope on that point. As I understand it, your latest fiscal package actually lowered import barriers in a number of places which you believe helps Canada and helps the rest of the world. Now the Unites States stimulus package raises import barriers with a “Buy America” provision for iron and steel and other infrastructure materials. Did you talk to President Obama? How’s this going to be resolved? You’re going one way, they’re going another.

HARPER: Look, we certainly raised our concerns. And as you know that provision was modified in the Senate to insure that they would conform with all existing trade obligations. There are trade provisions that allow you to have preferences in government procurement. But we think it’s very important, if we’re going to kickstart this global economy, that administrations around the world avoid turning stimulus packages into protectionism. Because if you try and stimulate a national economy at the expense of the global economy, we’re going to make the whole situation worse around the world. I think–my conversations with the president—I am quite convinced he understands that, he understands how serious it is to avoid a protectionist drift in this present economic climate.

KUDLOW: All right, last one Prime Minister. You have up in Canada if I’m not mistaken about a fifth of the General Motors/UAW workforce. You have given them some money as we have. How much money are you going to be prepared to give? They’re going to come back for much more in the next tranche, I guess at the end of March. How much money will you and the taxpayers of Canada be prepared to give?

HARPER: Well Larry we haven’t decided that. We’re doing due diligence on these guys. They’ve submitted our plans. We’re going to watch what’s being done in the United States. I mean, we’re under no illusion about why we’re doing this. The United States is engaged in a politically-directed restructuring of the industry. We came to the conclusion, whether one is for it or against it, that we have to put our skin in the game…

KUDLOW: And if I may, politically-directed, as opposed to let’s say, bankruptcy directed.

HARPER: Right, right. Absolutely. We came to the conclusion that if we don’t put our 20 percent skin in the game, we’re going to end up with an industry that’s restructured out of Canada entirely. We know it’s going to be a smaller industry in the future. There are some very difficult decisions that are going to have to be made. I hope both of our governments are willing to impose those decisions on all of the participants, on all of the players. Because that’s the only way we’re going to make sure…

KUDLOW: You’re kind of stuck, you’re kind of stuck. If we throw money at them you’re going to have to throw more money at them. Is that what you’re saying?

HARPER: I think if we’re not in the game the industry will be restructured out of Canada. And it’s frankly too important an industry to Canada. It’s probably close to 10 percent of our GDP that depends on that industry. A huge percentage in the province of Ontario, our industrial heartland. But we as governments, both Canadian and American governments, we have to make the industry, all of the players in the industry, make the difficult decisions necessary to make those sustainable companies.

KUDLOW: All right. Prime Minster, thank you very much.

HARPER: Thank you Larry.

KUDLOW: I really appreciate it. You’re terrific to come on.

HARPER: I appreciate it.

KUDLOW: All right, Canadian Prime Minister Stephen Harper.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

CNBC’s Mary Thompson reports.

Wall Street Reacts to Big Ben

*David Kotok , co-founder & CIO of Cumberland Advisors
*Rich Karlgaard, Forbes publisher, "Life 2.0" Author
*Jeff Kleintop, chief market strategist at LPL Financial Services

Obama Addresses the Nation…Budget, Banks & More
*Sen. Judd Gregg (R-NH)

CNBC ace Charlie Gasparino has the latest.

A Second Half Recovery?

*Lee Hoskins, senior fellow at the Pacific Research Institute & former president of the Federal Reserve Bank in Cleveland
*CNBC’s Rick Santelli
*CNBC’s Charlie Gasparino

Case Shiller & Consumer Confidence
CNBC real estate correspondent Diana Olick reports.

CNBC chief Washington correspondent John Harwood reports from Washington.

Also on board…Sen. Robert Casey (D-PA).

The Dynamic Duo Debates
*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Robert Reich, “Supercapitalism” author, public policy professor & former Clinton labor secretary.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Monday, February 23, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

CNBC’S Mary Thompson reports from the NYSE.

CNBC on-air editor Charlie Gasparino will have the latest.


On board:

*Doug Kass, president, Seabreeze Partners Management
*Ned Riley, founder and CEO of Riley Asset Management
*Michael Farr, president of Farr, Miller & Washington
*Stefan Abrams, Bryden-Abrams Investment Management Managing Partner

Rodgin Cohen, chairman of law firm Sullivan & Cromwell will be aboard.

Canadian Prime Minister Stephen Harper will join us to discuss the economic crisis, banks, trade, and more.


On board:

*Gerald O'Driscoll, senior fellow at the Cato Institute; former vice president at both the Federal Reserve Bank of Dallas and Citigroup.
*Bill Isaac, former FDIC Chairman, The Secura Group, LLC Founder & Chairman
*CNBC’s Rick Santelli

CNBC real estate correspondent Diana Olick has the details.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Santelli Interview 2/20/09

Fireworks from Friday night's The Kudlow Report on CNBC.

“Advantage Rick Santelli — and Larry Kudlow”

From NewsBusters:

Kudlow, Santelli Push Back Hard at Mortgage-Mod Program, Harder at Gibbs

By Tom Blumer
Created 2009-02-23 07:02

Advantage Rick Santelli — and Larry Kudlow.

CNBC reporter Santelli’s Thursday morning “Shout Heard Round the World” (CNBC’s term) objecting to the Obama administration’s mortgage modification program on the floor of the Chicago Mercantile Exchange quickly went viral, and struck two nerves. First, it ignited a groundswell of support from the over 90% of the nation that pays its bills and plays by the (normal) rules. The other nerve it struck was at the White House, whose spokesman Robert Gibbs struck back with a level of poorly concealed fury and contempt that I don’t think I’ve seen publicly displayed by any other administration in my lifetime.

Larry Kudlow had Santelli as a guest on CNBC’s Kudlow Report Friday night (CNBC video here; YouTube here [HT Scott’s Slant]). As one would fully expect by this time, Santelli made a few huge, emotionally-charged points of his own. The gratifying stunner is Kudlow’s passion in the final third of the interview, where he sounded the alarm over freedom of the press, basic respect, and bullying.

Looking around the web, at least at this point, this interview has gained relatively little exposure, leaving the distinct and incorrect impression that Gibbs has the rhetorical upper hand.

No way. The CNBC pair of Santelli and Kudlow has the White House on its heels. Common-sense, passionate, principled assertions rooted in truth will tend to do that. Here’s the full transcript (bolds are mine):

Kudlow: With us now to discuss this blistering attack is our Rick Santelli.

Hang on, Rick, for one second. Mr. Gibbs had some more to say. I want you to listen to this, and then we’re going to get your comments.

Gibbs (from earlier in the day): This is a copy of the President’s home affordability plan (check out the background chuckle, as someone apparently think Gibbs is about to put Santelli in his place. In your dreams. — Ed.). It’s available on the White House web site, and I would encourage him (to) download it. Hit print, and begin to read it.

Kudlow: All right, “Download it, hit print, and begin to read it.” Rick, this is one of the worst attacks I’ve ever seen on the media from the president or the White House or the press secretary. It reminds me of Papa Bush attacking Dan Rather. It reminds me of Richard Nixon’s blistering attacks on members of the press he didn’t like. I don’t like this one bit. First up, my friend, have you read the mortgage documents, the mortgage plan documents, because they’re saying you didn’t.

Santelli: Of course I did, Larry. I thought it was a one-page thing he (Gibbs) held up. (Looks that way to me — Ed.).

(Santelli holds up what is apparently the full plan.)

We all heard the President when he did this live on CNBC. Of course we saw it. And you know what, if you listen to my rant, Larry, did I talk to any points in here that were unjust?

Let’s just look at a few of these. Y’know, Mr. Gibbs, I will tell you this, the one point Larry and I don’t like right from the beginning is loan modifications through bankruptcy judges. Now, you really want to get particular? They said I don’t know what I’m talking about, and I think the notion is that we aren’t really paying for other people’s mortgages. Where does he think these thousand dollars are coming from to pay the services? Why should we pay those banks? They should be taking care of it themselves.

You know, this money is coming from somewhere. And if they’re going to lower the interest rates on some, they should lower it for everybody, or they should give everybody a check. You know what Larry? The 92% of the Americans that are paying their loan on time, do you think there’s no pain there? These people are probably cutting back, their 401(k)s are down. It’s tough. Just because they’re making their payment and they’re current, doesn’t mean they’re not cutting back as well.

We need to be American about this. A card laid is a card played. Do we want to inundate our kids with that? But more than that, do we want to teach our children that you can get out of a mistake and that there are do-overs? I just don’t think that’s American, and I read it, and guess what? (tears up papers and throws them in the air) I still don’t like it!

Kudlow: Rick Santelli, there is a populist revolt against this mortgage plan, precisely for the reasons that you have articulated this evening, and of course yesterday. You see it everywhere. You see it in the media everywhere.

Santelli: You know, I’ve ranted for years. Anybody who’s seen CNBC knows I’m impassioned about anything. You’ll ever see anybody get more excited about CPI than Rick Santelli. Why is this rant over the last 14 years such a big deal or different than the others? Because we hit a nerve. And the reason he (Gibbs) had the nice smile on his face and he was so kind to me, is because he is protesting too much. He sees the pluralist come back. He sees the web sites, he sees the hits, and maybe they didn’t expect it, and I’m not saying I’m right. But at the end of the day, call me any names that you want, but the fact of the matter is, everybody is talking about it, studying it, and looking at it more. And in my opinion, if I helped do that even one-tenth of 1%, I’m happy, and I can take it. And if we’re going to be on the Today Show together, I’ll drink decaf, but I have a feeling that you ought to drink caffeinated.

Kudlow: Well, I’ll just tell you this, of course I agree with virtually everything you said. I’ve made the same points. But Rick, I want to go into this. This is an unprecedented White House assault on a member of the press, a member of the media in good standing.

Santelli: Free speech as well.

Kudlow: You’ve been doing this stuff for years. And as I said earlier, I can’t recall anything like this. In some respects, this is worse than the Nixon attacks on Dan Rather, or I remember the Papa Bush’s attacks on CBS’s Dan Rather. Now there’s an issue here, there’s a freedom of the press issue. There’s also a respect issue. There’s also a bullying issue, Rick Santelli. I wanna know, do you want to take Gibbs up on having a cup of coffee? Do you feel that the White House has the right to start bullying members? It could be you today, it could be me tomorrow, it could be somebody on Fox News, it could be NBC News. It could be anybody. Does this mean this is how this White House and the Obama Presidency is going react to criticism from the media? Is this, is this a signal of things to come with the worst press relations we’ve seen in our lifetime?

Santelli: Well I certainly hope not. And if he’s inviting me to Washington, I certainly out of respect for the presidential administration, whom I want to succeed as badly as any of the other 300 million Americans, not only will I show up, but my favorite movie is “Mr. Smith Goes to Washington,” and Rick is going to be on his way.

Kudlow: All right, terrific stuff. Rick Santelli, have a great weekend. You’ve earned it.

Santelli: Thanks, buddy.

A few follow-up thoughts:

Kudlow must have missed the 1990s, when the Clinton Adminstration sicced IRS auditors on political opponents, including Joe Farah’s Western Journalism Center [5].

Bush 41 and Nixon went after Rather themselves, rather than leaving it to a surrogate to do their dirty work.

Kudlow has it very wrong about Bush 41 and Dan Rather. Bush 41’s 1988 takedown of Rather was in response to pre-planned bullying ambush from an incredibly boorish Rather, as this retrospective look [5] last year by Rich Noyes at NewsBusters clearly shows (interview transcript is here [6]).

In the brief item that accompanies the video at the CNBC link [7], Santelli says that “This is an issue of discourse on a topic that affects the foundation and principles that make our country great..... free speech, contract law, freedom of the press, and most of all the legacy we leave our children and grandchildren.” This morning, RedState notes yet another example [8] (“Democrats to Railroad Through Another Super Secret Massive Spending Bill”) of the White House’s and congressional leadership’s plans to ram through major legislation at light speed without giving lawmakers a chance to even read it, let alone have “discourse” about it.

With all due respect to Rick Santelli, it’s reasonable to believe that “discourse” is the last thing they want.

Friday, February 20, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

CNBC’s Michelle Caruso-Cabrera reports.

CNBC ace Charlie Gasparino reports.

The White House and Chris Dodd Weigh In
CNBC chief Washington correspondent John Harwood reports.

Also…CNBC reporter Rick Santelli will respond to criticism from The White House.

Good or Bad? How Would It Work?
*Chris Mayer, Columbia University economic professor
*Bill Seidman, former FDIC Chairman
*Bert Ely, president for banking consultant Ely & Co.

Gold: Commodity or Currency?
*Jon Najarian, co-founder of
*David Malpass, economist & president of Encima Global
*Don Luskin, chief investment officer at Trend Macro
*Alan Valdes, Hillard Lyons vice president & trader

CNBC’s Mary Thompson is on the story.

CNBC’s Rebecca Jarvis reports from Antigua.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Inflation Signals

Is inflation dead? While Ben Bernanke and most of the economics profession believes that it is, this is largely because of the Phillip’s curve — which argues a trade-off between unemployment and inflation, or recession and recovery. Since jobs and the economy are falling, and unemployment is rising, this Keynesian view argues that inflation is dead.

But the January inflation report suggests otherwise.

Today’s consumer price index (CPI) showed a 0.3 percent monthly rise for all items and a 0.2 percent increase for the core inflation rate, which excludes food and energy. Yesterday’s report on the producer price index (PPI) for January showed a 0.8 percent gain for all wholesale prices, plus a 0.4 percent rise excluding food and energy.

Obviously, the plunge in energy prices, which amounts to a huge tax cut for the economy, has brought inflation way down from its peak last summer. For example, the CPI has dropped from nearly 6 percent to 0 percent. Inflation is the cruelest tax of all. And this disinflation provides a significant tax cut for the economy — even when Obama’s stimulus plan does not. So that’s all to the good.

But inflation trends may not be as quiescent as the Phillips-curvers would have us believe. In classical terms, inflation is too much money chasing too few goods, leading to a decline in the purchasing power of money and the exchange rate of currency. Now, while the Greenback has been strong, it’s worth noting that the core PPI has increased 4.2 percent over the last 12 months. For consumer prices, the core rate is 1.7 percent.

Kind of makes you wonder: With the Fed pouring in all this new money, and the recessionary economy producing no new goods and services to absorb that new money, perhaps we are building a base for higher future inflation. That could be the signal of $1,000 gold, which is one of the big stories in today’s trading. Year to date, the yellow metal has been a star asset performer.

There are dissenters to the inflation story, such as my friend David Malpass. David thinks gold is way too high and that it will succumb to continuing deflationary pressures. But my sense is that the deflation threat at present is overrated.

Whether inflation comes roaring back remains to be seen. But I think the Fed’s balance-sheet expansion and the rise in M2 — even during a period of falling velocity — could be a longer-run inflation problem.

What’s the best way to curb this problem? Grow the economy, and produce plenty of new goods and services that will absorb the new money without inflation. I know folks have heard this from me before. But the best antidote for inflation — or sagging asset values in housing, stocks, and business — would be to slash the corporate tax rate, create a capital-gains tax holiday, and flatten the tax-rate structure for real pro-growth tax reform.

Contrary to what Obama is doing, let’s start rewarding producers and investors across the board, for all income levels. That will grow the economy, stop inflation, rescue housing, and reignite the stock market. And let’s keep the dollar steady while we undertake tax reform.

I believe it’s called supply-side economics. Oops. That’s out of favor now in Washington — isn’t it?

Thursday, February 19, 2009

Subsidize Bad Behavior?

Team Obama’s redistributionist mortgage-rescue plan would do just that.

President Obama’s massive mortgage-bailout plan is nothing more than a thinly disguised entitlement program that redistributes income from the responsible 92 percent of home-owning mortgage holders who pay their bills on time to the irresponsible defaulters who bought more than they could ever afford. This is Obama’s spread-the-wealth program in action.

Team Obama is rewarding bad behavior. It is enlarging moral hazard. It is expanding its welfarist approach to economic policy. And with a huge expansion of government-owned zombie lenders Fannie Mae and Freddie Mac, Team Obama is taking a giant step toward nationalizing the mortgage market.

Reporting from the Chicago commodity pits, my CNBC colleague Rick Santelli unleashed a torrent of criticism against this scheme. Santelli said: “Government is promoting bad behavior. . . . Do we really want to subsidize the losers’ mortgages? This is America! How many of you people want to pay for your neighbor’s mortgage? President Obama, are you listening? How about we all stop paying our mortgages! It’s a moral hazard.”

All this took place on the air, to the cheers of traders. Santelli called for a new tea party in support of capitalism. He’s right.

Obama’s so-called mortgage-rescue plan amounts to $275 billion in new debt that will have little if any lasting impact on deeply corrected housing prices or the mortgage-default problem that stemmed from the insistence of government to throw home loans at lower-income people. A modest reduction in mortgage rates will have little impact on home prices, as Harvard professor Ed Glaser has shown. And by the way, re-default rates on modified mortgages have been running 50 to 60 percent. This is not going to change. So why should we throw more good money after bad?

Meanwhile, Wall Street is awakening to the disappointment that the securitized mortgages behind the toxic assets that have done so much damage to banks and the credit system are not being treated in the Obama program. The oversight is incredible. There are no safe-harbor provisions to protect mortgage servicers against lawsuits if agreements are broken. The ownership of these securitized mortgage pools is wide and far, spanning the globe. Breaking contracts is exceedingly difficult, especially without any legislated legal protection.

Of course, banks that have whole loans can choose to modify them if they want. And in some cases it’s much better to modify than foreclose. But 70 percent of this bank-owned paper is performing. It’s the securitizations that have clogged up the world credit system.

Then there’s the bankruptcy-judge cram-down, which would allow the courts to renegotiate interest rates and loan principal. This would abrogate private contracts and throw out the rule of law. Do we think future investors will put up mortgage capital if they fear judges will overturn the terms of contracts? Home-loan supplies will fall and mortgage rates will rise.

Then there’s Fannie and Freddie, the big winners here. Only their products are eligible for mortgage relief. Jumbo mortgages are not. Neither are private-label mortgages created by various non-bank lenders. Fan and Fred already run 48 percent of the mortgage market. Obama’s proposal would greatly enlarge that and move the mortgage system toward government nationalization.

What’s even more incredible is Team Obama’s stubborn refusal to have any faith in the free market. In some of the hardest-hit areas of the country, markets are already solving the housing problem. Writing on his Carpe Diem blog, University of Michigan professor Mark Perry notes that while California home prices dropped 41 percent in 2008, home sales in the state jumped 85 percent. It now looks like 2008 sales for single-family houses will exceed levels reached in 2007.

What’s more, the unsold-inventory index for existing single-family detached homes in December 2008 was 5.6 months, compared with 13.4 months for the year-ago period. And the median number of days it took to sell a single-family home dropped to 46.1 in December 2008, compared with 66.7 in December 2007. So inventories are dropping, the number of days to sell a home are falling, and sales are rising in the wake of lower prices.

If the government really wants to help, instead of bailing out irresponsible mortgage holders, it should support new and younger families who want to buy starter homes and begin to climb the ladder of prosperity.

All this is Free-Market Economics 101. And I say, let free-markets work. Let’s remember that most folks — even those with underwater mortgages, where the loan value is more than the home value — do not walk away from their obligations. They don’t want to wreck their credit — and their homes are their castles. That’s the American way.

But if we penalize the good guys and subsidize the bad ones, we are undermining the moral and economic fabric of this country.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

Our CNBC team will report.

*Marvin Pickholz, SEC Former Assistant Director of Enforcement, partner at Duane Morris
*Jim LaCamp, RBC Dain Rauscher Sr. VP, Portfolio Manager & Financial Advisor
*Vanessa Drucker, freelance financial reporter

CNBC Melissa Lee reports on today’s top market news and developments.

A Look at the Rick Santelli Revolution
CNBC’s Rick Santelli will join us from Chicago.

The Dynamic Duo Debates

*Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity"
*Robert Reich, “Supercapitalism” author, public policy professor & former Clinton labor secretary.

*Zachary Karabell, president of River Twice Research
*Dr. Bob Froehlich, chief investment strategist, DWS Scudder
*Jim LaCamp, RBC Dain Rauscher Sr. VP, Portfolio Manager & Financial Advisor

CNBC chief Washington correspondent John Harwood reports on President Obama’s trip to Canada.

CNBC’s Margaret Brennan reports.

America Is Not Going Out of Business
Our aforementioned market panel will weigh in with its thoughts and perspective.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Wednesday, February 18, 2009

An Interview with BlackRock's Bob Doll

What follows below is the transcript of my interview with savvy, veteran investor Bob Doll on last night's show. Bob is a terribly smart and successful man with an impressive long-term track record. He helps manage $280 billion as chief investment officer for global equities at BlackRock Inc.

LARRY KUDLOW: Joining us now is BlackRock vice chair and director, Bob Doll, our great friend. Thanks for coming on in a tough night Robert.

ROBERT DOLL: Good evening Larry.

KUDLOW: All right, look, there is an election every day in the stock market. Investors vote with their money, and they are voting thumbs down. And there may be some good things out there, I don’t want to lose sight of that later when we talk, but I got to ask you right off the top, what is your assessment of this current downturn threatening the bottom? It’s a worldwide event, it’s not just the USA. It’s global Bob.

DOLL: It’s all about credit. It’s all about people not being able to pay their debt and the economy imploding as a result of that as you know Larry. And we are at a point now where we are testing those bottoms. As you pointed out in the front of the show, the S&P is 5 percent off the bottom and the Nasdaq is 12 percent off the bottom. So there is some room here. Our guess is we are in a bottoming process that really started in October, and we’ve gone sideways now for a few months. This will take longer until all the things that we’ve been throwing at this – lower interest rates, credit relief, thawing of the bond market – takes some effect. It will take longer.

KUDLOW: Tremendous increase in the old Milton Friedman M2 money supply, $600 billion since early September as a result of the Fed’s buying assets and expanding their balance sheet and pouring liquidity into the economy. The Baltic Dry Index suggests that commodities shipping is picking up around the world. But Bob, you know I say this every morning, every evening, I go through this, I’m getting clobbered in this point of view and I want to ask you a general thought. Is this country and the rest of the world moving left? Is it departing from free market capitalism? Is it suggesting to investors that the solution to the recession may be worse than the recession?

DOLL: Sad but true, I’m afraid you’re right Larry. It’s curious that on a day we get this so-called stimulus package signed, the market thumbs its nose at that package. I heard your interview with Senator Corker and the whole business about working on writing checks for inefficient businesses in this country. We need to reward efficiency. We need to create some incentives so we can come out of the mess, not protect those areas that are already defensive.

KUDLOW: So when investors see the Sunday talk shows, where Republican Senator Lindsey Graham starts shifting toward President Obama and touts nationalizing banks – which I think probably had a lot to do with today’s action, financials were clobbered again today – when you read about bank nationalization, this is like the most anti-shareholder thing imaginable. What do you make of that? How big a factor was that today? How big a factor is this going to be?

DOLL: It is a big factor. Each time we have this collapse in financials, which has happened several times, it’s usually the same day that you hear the word nationalization used often. And as you pointed out, and I agree, we have to let some capacity go in many industries. We can’t keep all this capacity. For example, in the financial system some banks won’t be around. And to protect them is probably not a smart move. It’s throwing good money after bad.

KUDLOW: I mean when you look at the list today, it was all the pro-growth, so-called cyclical sectors that got killed right? Coal, energy transportation, construction, the semiconductors, metals, mining, machinery, commodities. The stuff that should be going up if we’re on the verge of an economic recovery is not going up. There’s a six to nine or twelve month lead, it’s not happening, despite the money supply growth, despite the credit thaw that you point out all the time and I try to. What’s the message here in the stock market? I don’t want to give up on it. I’m never going to give up on it.

DOLL: And I don’t want to either. You and I are both optimists.

KUDLOW: But it’s a gloomy picture. What do you do here now? What do you do Robert? Give people some wisdom.

DOLL: I think a couple of things. One, have some patience. The Fed did not get even with the curve I would argue until December when they went to the zero interest rate policy. I think that we also need to recognize that all the measures in place will take some time. The big decline in the price of oil did not happen that many months ago. These things take time before they have an effect on the economy.

We have argued that 740 to 840, the gap between the November 21 and the October 10 lows is an area to dollar cost average carefully, slowly but surely, into equities. We haven’t spent that much time there, most of this year we have been above that range. We’re back into it now. This is when the rubber meets the road. We would be dollar cost averaging back into risk assets.

KUDLOW: All right, well that’s a positive view, and I thank you. I just want to read out to evening viewers, the S&P 500 is still 5 percent above its November lows. The mid-cap 400 is much, much better, that’s still 16 percent above. The smaller cap 600 is 8 percent. The small-cap Wilshire 2000, that’s a good small cap index, that’s up 11 percent. And the broadest measure, the Wilshire 5000 is up 7 percent. So, apart from the emotion of a bad day, you could say we’re still okay, we’re holding that bottom. And those bottoms are important.

DOLL: We’d agree totally with that view. We think the average stock is doing better than some of the broad averages, especially the Dow. And as result of that, the market is repairing. It is forming a bottom. It won’t happen overnight. But we would argue the next noticeable move in equities will be to the upside.

KUDLOW: One other thing here. Look, the stimulus package looks like a big welfare and transfer payment. There’s some small stimulus for middle and lower income consumers. There’s nothing in there for investors. There’s nothing in there for producers. There’s nothing in there for capitalists, okay? But I want to ask you, let me come back to this, another competing theory—and I’m trying to get everybody to think about this—the money supply. Milton Friedman. All right? Keynes is dead. Friedman’s dead. But we’re going to debate Keynes versus Friedman. You know, fiscal, government spending and fine-tuning versus monetary growth. This is the biggest buildup in M2 I’ve ever seen Bob Doll. Isn’t that going to have some salutary effect on the economy? Shouldn’t stocks be sniffing that out?

DOLL: Absolutely. It is a positive. We need to stabilize the velocity of that money before we can get the positive out of the growth in the money supply

KUDLOW: So at the end of the day, this is either the greatest buying opportunity in 70 or 80 years, or, or, or what?

DOLL: Who knows what the next episode brings. We don’t want to look at the end of the world. I don’t think it’s coming any time soon.

KUDLOW: You know what? I think you’ve just got to bet on the country. You’ve got to bet on the country at times like this. I think that’s the right call. Robert Doll thank you ever so much.

DOLL: Thank you Larry.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

Our panel of experts will discuss and debate.

*Steve Liesman, CNBC senior economics reporter
*Diana Olick, CNBC real estate correspondent
*Chris Mayer, Columbia University economic professor
*Ed Glaeser, Harvard University economics professor

Deutsche Bank Securities chief economist Joe Lavorgna will be aboard with his economic perspective.

CNBC ace Charlie Gasparino has the story.

CNBC's Julia Boorstin reports.

CNBC's Hampton Pearson reports.

Our market panel will weigh in with its insight on today's top news and developments.

On board:

*Peter Schiff, chief global strategist at Euro Pacific Capital
*Jerry Bowyer, chief economist at Benchmark Financial Network.
*Jim Paulsen, Wells Capital Management Chief Investment Strategist

Please join us. The Kudlow Report. 7pm ET. CNBC.

Moving Beyond the Fake Stimulus: Reviewing Policies that Produce Real Growth

Here's a new video from my friend Dan Mitchell over at the Cato Institute exploring the policies and conditions that actually generate economic growth. It comes as no surprise that smaller government and free markets are the key ingredients.

An Interview with Senator Bob Corker on Auto Bailout Nation

Senator Bob Corker told me last night on The Kudlow Report that Team Obama needs to draw a line in the sand and finish negotiations with with GM & Chrysler. Here is the transcript of my CNBC interview with him regarding key developments in the auto bailout nation saga.

LARRY KUDLOW: Nobody knows more about the auto bailout discussion and debate than our next guest, Tennessee Republican Senator Bob Corker. Mr. Corker, welcome back, sir.

SENATOR BOB CORKER: Larry, it's always good to be with you. Thank you.

KUDLOW: All right. This was a preliminary agreement on the way to the end of March agreement, but what we know is there's a lot that's not settled. The debt story is not settled. The wage and benefit story is not settled. The VEBA health care trust story is not settled. I want to ask you at the top. Your point, whatever it was, six, eight weeks ago in mid-December was that the government should have put it in a statute and made a law to really put the pressure on these issues. They never did. These were the non-binding issues as you well know. And the non-binding issues are still unbound as best I can see. What's your take on this latest update - report today?

CORKER: Well, it's a lot to take in. We did have a briefing earlier with Chrysler officials. It started at 6:00. We obviously tuned in to the Rick Wagoner press conference, and we actually have a discussion with them tonight at 8:00. A lot to take in. I do think Chrysler was a little more specific as far as where they had gotten as it related to some of the UAW concessions and the VEBA concessions. Still having some trouble with some of the outstanding debt. Obviously they have secured debt holders which is very different from GM.

I do think it would be very helpful for the Obama administration to say, look, this is a line in the sand. These things have to occur. This is not just discussion. I think there's been some difficulty in getting everybody to actually focus because there's been such a vagueness. There has not been a czar. There hasn't been any indication from the administration as to how serious they might be as it relates to this. And so I think should that occur, maybe these concessions by all parties which are necessary for these companies to succeed, maybe they can be more finite, more concrete, and actually be in such a place that we can all discern what the actual transaction consists of.

KUDLOW: Let me just focus on this issue of the car czar. This Ron Bloom, who apparently is a very smart, tough guy who’s worked in the steel industry and so forth. You may have a thought on him or not. But I want to ask you. He is not the car czar. There's not going to be a car czar. There's going to be a sort of car team, as I understand it. Geithner from the Treasury, Larry Summers from the White House. But you’re also going to have, as I understand it, Departments of Transportation, Labor, Commerce, I don’t know who else. This tells me it's a diffuse process, chock full of politics, that's going to help the UAW and is not going to get the restructuring job done. In other words, without a car czar, without clear government statutes to get things done on wages and benefits and the debt and all the rest of it. Now you've got this large team of cabinet officers. This suggests to me this is a moving target, totally politicized, sir. Your thoughts?

CORKER: Well, look. I think all that's really necessary is for the Treasury Department and Larry Summers just to say, look, this is real. And these items that were laid out in the loan documents have to occur. They have to occur by a date certain. The fact is though, the bigger question, even if that does occur, is the fact that these companies, the sales in January were far below what they expected. These companies had plans earlier, at 11 million SAR [seasonally adjusted rate] this next year. Obviously they think it's going to be around 10.1 SAR now.

And so the whole issue is going to be not just the fact that they have this viability plan which was, by the way, going to require no more taxpayer funding. But it's evident regardless of what they do with these negotiations, they feel they're going to need additional moneys and that's going to be the next hurdle, if you will, for this country to digest and to understand. Chrysler's employee level is going to be down at the 52,000 level. There's going to be a significant investment needed in their company to keep them going. GM is saying the same thing.

So, yes, two things need to happen. And that is number one, there needs to be a line in the sand and finish these negotiations. My sense is, Larry, that they're actually somewhat closer on the labor side than what was indicated today. I had a number thrown out. I think since GM did not publicize the number today, it was actually a pretty sizeable number of labor – dollarswise -- that labor had apparently conceded as it related to substitute pay and all those kinds of things to get them competitive. So we need to get a line in the sand on all those things and understand it and then digest what the taxpayers really ought to do in this case. Because it's evident even if they reach concrete decisions on these, they're going need more money from the federal government to stay alive.

KUDLOW: A lot more. A lot more. I mean want to ask you about the more money part from a taxpayer's stand point, sir. I mean look, GM is coming in with up to $17 billion increase? That's what they're asking for today as I understand it. There's no end to that. You know that. I know that. There's no end to that. We own it. The taxpayers own it. Do you doubt that the Obama administration and Congress will deny them the funds they need? Do you believe there's an honest chance they'd go into bankruptcy? I don't think so.

CORKER: Both of the companies in talking to Chrysler, they had indicated and it's in their plan so it's public knowledge that if they went into bankruptcy, they felt like it would take actually $25 billion in debtor-in-possession-financing for them to actually come around. I heard the same number from GM. So, you know, Mark Zandi, if you remember, who testified in the second hearing, said that if any money went into these companies without appropriate restructuring, the taxpayers were going to be on the hook for $75 to $125 billion. And that's what our effort this last December was all about, was to go ahead and cause the companies to get restructured so that would not occur.

I will say - I'm down here in Tennessee. Businesses are suffering tremendously. I lived through the early '80s. I lived through the early '90s. I did my financial statement in my head every night just to see if I could pay everybody back, which I did, and did it on time. I have not seen an economy like we have in my lifetime. It is tough. The credit situation is very difficult. And I think that what I want to do is digest more fully what they've put forth before I say what I think we ought to do. I do think though, in general, all of us in this country are becoming far more concerned about continual bailouts, continuing taxpayer money going into companies, going into institutions, and I think at some point we're going to have to take some tough medicine and call some of the financial institutions and others to actually fall by the wayside. I’m not saying that in this case yet…

KUDLOW: Debtor in possession, sir. $25 billion for DIP money in a bankruptcy, debtor in possession, that's the cheaper course. You're talking about a $100 billion bailout. You could be talking about a $150 billion bailout. In effect, this is an anti-recession tool. It may not be the bailout we wanted to restructure. Yes, it's a bad recession. But look, once you open that door, you know who else is going to go through that door. Other industries, construction, retailers, you name it. The pork barrel, stimulus package, what does Rush call it? Pork-u-lus? That’s the future. We’re moving left. We’re picking winners and losers. We’re going on the European model. Are we not?

CORKER: It's very concerning. I'm giving talks down here in Tennessee and I think if any of us had imagined where we might be as country, 24 months ago today, I think we would have been shocked to have been talking about some of the terminology with companies, some of the things that are occurring and I'm very concerned about the slope that we're going down. So I think before, Larry, weighing in on what I think exactly is the course we ought to take here, I want to digest these plans a little more fully. We have a briefing tonight with GM at 8:00. And I thank you for this interview and good luck on the rest of the program.

KUDLOW: You're terrific, sir. When you do digest and come up with your conclusions, I hope you’ll come back and give us a report. We value your judgment on this.

CORKER: Thank you very much. I appreciate it.

Tuesday, February 17, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

CNBC auto and airline industry reporter Phil LeBeau will report live from Detroit following GM CEO Rick Wagoner’s press conference.

CNBC’s Michelle Caruso-Cabrera reports on today’s top news and developments including news on Sirius/XM.

Sen. Bob Corker (R-TN) will join us with his insight.

BlackRock CIO Bob Doll will be aboard with his investment thoughts and ideas.

CNBC’s Hampton Pearson has the details.

*Mike Ozanian, Forbes national editor
*Vince Farrell, Soleil Securities Chief Investment Officer
*Bob Doll, BlackRock CIO
*Jim LaCamp, RBC Dain Rauscher Sr. VP, Portfolio Manager & Financial Advisor

CNBC’s Rebecca Jarvis reports.

CNBC chief Washington correspondent John Harwood reports.

Duking it out this evening will be Steve Moore, Wall Street Journal senior economics writer & author of "The End of Prosperity" and Robert Reich, “Supercapitalism” author, public policy professor & former Clinton labor secretary.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Friday, February 13, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

Stimulus Update...Team Obama…Judd Gregg Fallout...Foreclosure Plan
CNBC chief Washington correspondent John Harwood reports the latest.

CNBC senior economics reporter Steve Liesman reports from Rome.

CNBC’s Rebecca Jarvis reports.

Dan Clifton, head of policy research at Strategas Research Partners will offer his insight.

Also on board:

*Fritz Meyer, senior investment officer at A I M Advisors
*Dawn Bennett, CEO of Bennett Group Financial Services
*Don Luskin, chief investment officer at Trend Macro

CNBC ace Charlie Gasparino reports with perspective from our market panel.

CNBC’s Michelle Caruso-Cabrera reports.

Squaring off this evening will be Keith Boykin, editor of The Daily Voice and Jerry Bowyer, chief economist at Benchmark Financial Network.

Please join us. The Kudlow Report. 7pm ET. CNBC.

Thursday, February 12, 2009

Three Hats Off to Judd Gregg

Three hats off to Judd Gregg for withdrawing his nomination for commerce secretary. And I mean three hats. I’ve never seen anything like this.

I say this not in a partisan-political sense, but in terms of Sen. Gregg’s extraordinary character and integrity. He would not compromise his beliefs.

Here’s the money paragraph:

However, it has become apparent during this process that this will not work for me as I have found that on issues such as the stimulus package and the Census, there are irresolvable conflicts for me. Prior to accepting this post, we had discussed these and other potential differences, but unfortunately we did not adequately focus on these concerns. We are functioning from a different set of views on many critical items of policy.

Judd Gregg has more backbone than anyone in politics today. He did his best to cross over and help Pres. Obama. But as Gregg and I discussed in a recent CNBC interview, the senator has a long and outstanding record as a tax-cutter, budget-cutter, deficit-cutter, and debt-cutter. All of these principles have been badly violated in the so-called stimulus package. And of course the White House move to steal the Census Bureau during a crucial political-reapportionment period was a low blow.

But how many major public figures would have simply drawn a line in the sand and said, No, I simply cannot cross that line? That’s what Gregg just did.

With so many weak-kneed leaders in business and politics today, Gregg has just provided an incredibly strong leadership example. If you can’t wake up in the morning and look at yourself in the mirror in good conscience, then you’re doing something wrong. There’s a right way and a wrong way in life. Gregg chose the right way.

You know what? He ought to think very seriously about a presidential run. I mean it. This is an act of courage. That’s what we need.

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

CNBC’s chief Washington correspondent John Harwood reports the latest setback for Team Obama.

CNBC’s Diana Olick reports.

*CNBC’s Sharon Epperson on oil.
*CNBC’S Bertha Coombs on today’s stock market news.

*Cary Leahey, economist at Decision Economics
*Dennis Gartman, economist and editor of the Gartman Letter
*Jerry Bowyer, chief economist at Benchmark Financial
*Josh Siegel, managing principal of StoneCastle Partners

CNBC ace Charlie Gasparino reports.

*Charlie Gasparino, CNBC on-air editor
*Thomas Patrick, chairman of New Vernon Capital
*Joseph Ficalora, chairman & CEO New York Community Bancorp, Inc

Viacom & Malone Buying Sirius/XM
CNBC’s Julia Boorstin reports.

*Dennis Gartman, economist and editor of the Gartman Letter
*Jerry Bowyer, chief economist at Benchmark Financial
*Rich Karlgaard, Forbes Publisher; "Life 2.0" Author
*Jason Trennert, chief investment strategist and managing partner at Strategas Research Partners

Please join us. The Kudlow Report. 7pm ET. CNBC.

Wednesday, February 11, 2009

Tonight on The Kudlow Report

On tonight's show at 7pm ET on CNBC:

CNBC’s Diana Olick reports on today’s hearings.

CNBC ace Charlie Gasparino reports.

CNBC chief Washington correspondent John Harwood reports.

CNBC's Brian Shactman reports on today's news & developments.

Our panel:

*Dr. Bob Froehlich, chief investment strategist, DWS Scudder
*Debra Brede, president of D.K. Brede Investment Management
*Peter Schiff, chief global strategist at Euro Pacific Capital

*Rep. Brad Sherman (D-CA)
*Rep. Scott Garrett (R-NJ)

CNBC’s Scott Cohn reports.

*Larry Bossidy, former chairman & CEO of Honeywell International Inc.
*Charlie Gasparino, CNBC on-air editor

*Larry Bossidy, former chairman & CEO of Honeywell International Inc.
*Art Laffer, economist, chairman of Laffer Associates
*Jeff Sonnenfeld, associate dean of the Yale University School of Management

Please join us. The Kudlow Report. 7pm ET. CNBC.

Tuesday, February 10, 2009

Is Tim Geithner Ready for Prime Time?

Plunging stocks say no.

The day after President Obama’s big news conference, and on the day Treasury-man Tim Geithner unveiled his Bank Bailout Nation TARP III Plan, stock markets plunged in a vote of no-confidence, with the Dow dropping nearly 400 points.

Obama got the ball rolling by painting a dismal picture of the U.S. economy, saying recovery won’t arrive until 2010 at the earliest. He then said only big-government spending can jolt our economy back to life. He also bitterly attacked supply-siders and the Bush tax cuts, especially “tax cuts that are targeted to the wealthiest few Americans.” He added that these strategies have “only helped lead us to the crisis we face right now.”

You can say a lot of things about President George W. Bush’s big-government mistakes. But blaming the Bush tax cuts for the credit-crunched downturn is utter nonsense. It’s ideological politics at its worst. (It’s worth noting that while Obama was trashing supply-siders on Monday night, Scott Rasmussen’s latest poll showed 62 percent of U.S. voters wanting the stimulus plan to include more tax cuts and less government spending.)

Later in the news conference, Obama acknowledged how businesses that suddenly couldn’t get credit pulled back on their investment and laid off workers — workers who then cut back on their spending. That — along with the Fed’s stop-and-go monetary policy and a huge oil shock — is much closer to the true cause of this recession.

This is all most strange. Obama’s attack on supply-side economics would rule out the successful Kennedy-Johnson tax cuts that spurred growth in the 1960s and the Reagan tax cuts that ignited growth in the 1980s. Even Bill Clinton cut the capital-gains tax. And George W. Bush’s tax cuts helped generate a six-year economic expansion before the oil shock and credit crunch took hold.

On Tuesday morning, stocks opened down about 75 points in the wake of Obama’s pessimism. But stocks really started to tumble when Tim Geithner stepped to the microphone. He totally bombed in his debut.

Geithner had no real plan to deal with the problem of unmarketable toxic assets on bank balance sheets. He offered no new architectural structure, no good way to remove the toxic assets, no clear pricing or funding proposals, and no meat on the bones.

According to Merriam-Webster, a “plan” is “a detailed formulation of a program of action; a method for achieving an end.” But Mr. Geithner had none of this. As a result, stocks plunged about 250 points. Prominent investment strategist Ed Yardeni described Geithner as an empty suit with an empty plan.

A week earlier, ace CNBC reporter Charlie Gasparino scooped the speech by chronicling how Wall Streeters advising the Obama administration talked Geithner out of a government-backed “bad bank” that would somehow buy toxic assets to be either worked out profitably or resold to private investors. These were the same “greedy” executives that Obama and Geithner had been trashing. So now Geithner talks vaguely about some sort of public/private investment fund that will use government capital and provide financing for private investors, who are then supposed to buy toxic assets.

Nobody on Wall Street is buying it right now. Geithner said the fund might cost $1 trillion, but there’s no “there” there. No wonder bank stocks dropped 12 percent on Tuesday.

By the way, Geithner did not offer any regulatory accounting relief, such as putting an end to the disastrous mark-to-market rule that has wrecked bank capital and is one of the root causes of the whole financial problem.

Geithner did talk about an expansion of the Fed’s Term Asset-Backed Lending Facility, or TALF, to help finance consumer-loan securitization packages that provide upwards of 40 percent of all consumer and small-business lending. This might work, but again there were no details. And the Fed has yet to start its TALF operation.

Finally, Geithner talked about a comprehensive $50 billion housing-and-mortgage modification plan. But once again, no details — especially on the controversial issue of having bankruptcy judges determine home-loan interest rates and lending totals without bank recourse to contractual obligations.

One positive comes from a New York Times story claiming that Geithner beat back Obama’s political advisers who want to nationalize big banks, fire senior bank executives, and establish heavy government controls over bank operations. But at the end of the day the absence of any clarity or pragmatic details from Mr. Geithner left stock markets sadder and poorer for the effort.

Geithner would have been better off not giving a speech until he could put real meat on the bones. What he pulled Tuesday was a classic rookie move that will further erode the public’s trust in his capabilities. Following the controversy over his late payment of taxes, this bank-plan blunder could be another nail in his coffin. Apparently, Tim Geithner is not yet ready for prime time.